CarMax Reports Record Third Quarter Earnings
RICHMOND, Va., Dec. 18 -- In a separate release, Circuit City Stores, Inc. today reported third quarter results for the company, including record results for the CarMax Group .
Sales
Total sales for the CarMax Group were $774.3 million for the third quarter ended November 30, 2001, up 38 percent from $561.7 million in last year's third quarter. Comparable store dollar sales increased 38 percent, and comparable store unit sales rose 31 percent. Comparable store used-vehicle dollar sales rose 36 percent, and comparable store used-vehicle unit sales rose 29 percent. Comparable store new-vehicle dollar sales rose 51 percent, and comparable store new-vehicle unit sales rose 46 percent.
For the nine months, the CarMax Group's total sales rose 30 percent to $2.42 billion in fiscal 2002 from $1.86 billion in the first nine months of last year. Comparable store dollar sales rose 30 percent, and comparable store unit sales rose 24 percent. Comparable store used-vehicle dollar sales rose 31 percent, and comparable store used-vehicle unit sales rose 24 percent. Comparable store new-vehicle dollar sales rose 28 percent, and comparable store new-vehicle unit sales rose 24 percent.
Comparable Store Sales Growth
Third Quarter Ended Nine Months Ended
November 30 November 30
2001 2000 2001 2000
Vehicle Dollars:
Used Vehicles 36% 15 % 31% 15%
New Vehicles 51% (4)% 28% 11%
Total 38% 11 % 30% 15%
Vehicle Units:
Used Vehicles 29% 11 % 24% 11%
New Vehicles 46% (3)% 24% 11%
Total 31% 9 % 24% 11%
Net Earnings
Net earnings for the CarMax business rose 144 percent to $18.4 million in this year's third quarter from $7.6 million in the third quarter of last year. Net earnings per CarMax Group share rose 143 percent to 17 cents from 7 cents in last year's third quarter. The net earnings attributed to the CarMax Group stock were $6.6 million, an increase of 241 percent from $1.9 million in last year's third quarter. The remainder of the CarMax Group's net earnings is attributed to the Circuit City Group stock.
Net earnings for the CarMax business increased 92 percent to $72.4 million in the first nine months of this year from $37.8 million in the same period last year. Net earnings per CarMax Group share rose 83 percent to 66 cents in the first nine months of this year versus 36 cents in last year's first nine months. The net earnings attributed to the CarMax Group stock were $21.4 million, an increase of 124 percent from $9.6 million in last year's first nine months.
CarMax Group Earnings
(Amounts in millions except per share data)
Third Quarter Ended Nine Months Ended
November 30 November 30
2001 2000 2001 2000
CarMax Group net earnings $18.4 $ 7.6 $72.4 $37.8
Net earnings attributed
to the Circuit City Group $11.9 $ 5.7 $51.0 $28.2
Net earnings attributed
to the CarMax Group $ 6.6 $ 1.9 $21.4 $ 9.6
CarMax Group diluted
weighted average shares
outstanding 38.3 27.0 32.7 27.0
Net earnings per CarMax
Group share $0.17 $0.07 $0.66 $0.36
For the quarter and the nine months, net earnings attributed to the CarMax Group stock grew faster than total net earnings and net earnings per CarMax Group share because of the impact of the sale of CarMax Group stock during the second quarter by Circuit City Stores, Inc. Quarterly earnings per CarMax Group share are calculated by dividing earnings attributed to the CarMax Group stock for the reported quarter by the weighted average CarMax shares outstanding for the quarter. Under current accounting standards, year-to-date earnings per share is calculated by dividing year-to-date earnings attributed to the CarMax Group stock by the weighted average shares outstanding for the nine-month period. Therefore, year-to-date earnings per share do not equal the sum of the quarterly earnings per share.
With the impact of the offering, 64.5 percent of the CarMax Group's third quarter earnings and 70.4 percent of the CarMax Group's nine-month earnings were allocated to the Circuit City Group. For the same periods last year, 74.6 percent of the CarMax Group's earnings were allocated to the Circuit City Group. At the end of the third quarter, the Circuit City Group retained a 64.4 percent interest in the CarMax Group shares.
CarMax Group Review
``In the third quarter, CarMax exceeded sales and earnings expectations, as we did in the first half of this year,'' said W. Austin Ligon, president of CarMax. ``As we began the quarter, used-car sales were consistent with the 20 percent growth trends we experienced throughout the first two quarters. Beginning in late September, we saw a strong increase in traffic flow to our used-car superstores, driven by cross shopping from the new-car financing incentive programs. The power of the CarMax consumer offer allowed us to convert this increased flow into significantly accelerated used-car sales in both October and November. The five-year, zero-percent financing incentives drove extraordinary growth in new-car sales in October. However, we saw the new-car sales growth rate slow in November as we sold through our close-out inventory of '01 models and as all zero-percent financing incentive terms were limited to three years and available on fewer models.
``We met our third quarter gross margin dollars-per-unit targets in our used-car business,'' said Ligon. ``Used-car higher average retails and the slightly higher mix of new cars to used cars were the primary factors that caused the gross margin percentage decline to 11.8 percent in this year's third quarter from last year's 12.8 percent. Used-car gross dollar margins are unit-driven rather than price-driven and are, therefore, similar across most makes and models. Consequently, the gross margin percentage on a higher priced used car is lower than on a more modestly priced car. The incentive-driven growth in new cars resulted in the higher mix of new cars to used cars, and new cars carry much lower gross margins, both in dollars and on a percentage basis. In addition, we experienced a small amount of gross margin erosion caused by wholesale auction losses that occurred following the rapid decline of wholesale prices after September 11.
``Our higher comparable unit sales generated considerable leverage of fixed expenses and corporate overhead, driving a substantially lower expense ratio. The higher average retails also added to the expense leverage from our record sales growth. The combination of these factors more than offset the decline in the gross margin percentage,'' Ligon said. ``As we did in the first two quarters, we experienced increased yield spreads from our finance operation, which continues to benefit from the lower cost of funds. All these elements resulted in an expense ratio of 7.9 percent compared with 10.1 percent in last year's third quarter.'' CarMax's third quarter operating margin before interest and taxes rose to 3.8 percent this year from 2.6 percent last year.
Operating Ratios - CarMax Group
Third Quarter Ended Nine Months Ended
November 30 November 30
2001 2000 2001 2000
Net Sales and Operating Revenues 100.0% 100.0% 100.0% 100.0%
Gross Profit Margin 11.8% 12.8% 12.5% 13.3%
Expense Ratio 7.9% 10.1% 7.5% 9.5%
Operating Profit Margin (EBIT) 3.8% 2.6% 5.0% 3.8%
Net After-tax Margin 2.4% 1.3% 3.0% 2.0%
For the quarter, the CarMax business produced pretax earnings of $29.7 million, a 144 percent increase from pretax earnings of $12.2 million in last year's third quarter. The pretax profit margin was 3.8 percent this year, compared with 2.2 percent in the same period last year. The net after-tax profit margin rose to 2.4 percent from 1.3 percent.
Earnings Expectations
``Thus far in the fourth quarter, we have continued to see strong comparable store used-car unit growth despite the tough comparison with last year's fourth quarter rate of 19 percent,'' said Ligon. ``Because our sales are heavily weighted toward and our profits driven by used-car unit sales, we are comfortable with the current range of analyst estimates, which is 12 cents to 14 cents per CarMax Group share for the fourth quarter of the fiscal year.''
On December 11, CarMax completed the sale of its Dallas Chrysler new-car stand-alone franchise.
Conference Call Information
Circuit City Stores, Inc. will host a conference call for interested investors at 11:00 a.m. Eastern Time today to discuss the release of third quarter results for both the Circuit City Group (NYSE: CC - news) and the CarMax Group (NYSE: KMX - news). The conference call will begin with a discussion of the CarMax Group's results, followed by a discussion of the Circuit City Group's results.
Domestic investors may access the call at 1-888-787-0199 (passcode: Circuit City). International investors should dial 1-312-470-7002 (passcode: Circuit City). A live Web cast of the conference call will be available on the CarMax's investor information home page or at www.streetevents.com . Access the investor information home page at http://investor.CarMax.com .
A replay of the call will be available beginning at approximately 3:00 p.m. Eastern Time today and will run through midnight, December 26, 2001. Domestic investors may access the recording at 1-800-382-0779 and international investors at 1-402-998-0143. No access code is required. A replay of the call also will be available on CarMax's investor information home page by the end of business today.
CarMax is the nation's leading specialty retailer of used cars. With headquarters in Richmond, Va., the company currently operates 38 retail units in 36 locations, including 33 used-car superstores. CarMax also operates 18 new-car franchises, 15 of which are integrated or co-located with its used-car superstores. For more information, access the CarMax Web site at www.CarMax.com .
CarMax is a subsidiary of Circuit City Stores, Inc. Circuit City Stores, Inc. has two series of common stock, one of which is the CarMax Group stock, which tracks the performance of the CarMax operations, and the other of which is the Circuit City Group stock, which tracks the performance of the Circuit City operations and the retained interest in the CarMax Group. A portion of the earnings of the CarMax Group is attributed to the CarMax Group stock; the balance is attributed to the Circuit City Group stock.
This release contains forward-looking statements, which are subject to risks and uncertainties. Additional discussion of factors that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations is contained in the Circuit City Stores, Inc. SEC filings.
CIRCUIT CITY STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
PERIODS ENDED NOVEMBER 30
(Amounts in thousands except per share data)
Three Months Nine Months
2001 2000 2001 2000
NET SALES AND OPERATING
REVENUES $3,054,232 $2,887,269 $8,620,621 $9,141,901
Cost of sales, buying
and warehousing 2,412,055 2,305,141 6,807,021 7,174,720
Appliance exit costs -- -- -- 28,326
GROSS PROFIT 642,177 582,128 1,813,600 1,938,855
Selling, general and
administrative expenses 597,051 677,853 1,712,510 1,829,357
Appliance exit costs -- -- -- 1,670
Interest expense 474 5,061 5,120 14,865
EARNINGS (LOSS) BEFORE
INCOME TAXES 44,652 (100,786) 95,970 92,963
Income tax provision
(benefit) 16,964 (38,299) 36,465 35,325
NET EARNINGS (LOSS) $27,688 $(62,487) $59,505 $57,638
Net earnings (loss)
attributed to:
Circuit City Group
common stock $21,134 $(64,407) $38,091 $48,057
CarMax Group common
stock $ 6,554 $ 1,920 $21,414 $ 9,581
Weighted average common
shares:
Circuit City Group
basic 205,571 204,079 205,278 203,569
Circuit City Group
diluted 206,639 204,079 206,350 205,651
CarMax Group basic 36,292 25,570 30,681 25,546
CarMax Group diluted 38,316 27,020 32,661 26,965
NET EARNINGS PER SHARE:
Circuit City Group:
Basic $0.10 $(0.32) $0.19 $0.24
Diluted $0.10 $(0.32) $0.18 $0.23
CarMax Group:
Basic $0.18 $0.08 $0.70 $0.38
Diluted $0.17 $0.07 $0.66 $0.36
CIRCUIT CITY STORES, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands)
November 30
2001 2000
ASSETS
Current Assets:
Cash and cash equivalents $709,914 $121,868
Net accounts receivable 700,713 564,832
Inventory 2,500,678 2,653,440
Prepaid expenses and other current assets 66,082 102,493
Total Current Assets 3,977,387 3,442,633
Property and equipment, net 861,059 1,021,973
Other assets 33,227 44,510
TOTAL ASSETS $4,871,673 $4,509,116
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt $102,469 $132,354
Accounts payable 1,765,244 1,504,541
Short-term debt 2,591 151,386
Accrued expenses and other current
liabilities 177,432 157,333
Deferred income taxes 142,045 65,468
Total Current Liabilities 2,189,781 2,011,082
Long-term debt, excluding current installments 15,212 118,105
Deferred revenue and other liabilities 88,493 106,336
Deferred income taxes 9,194 23,586
TOTAL LIABILITIES 2,302,680 2,259,109
STOCKHOLDERS' EQUITY 2,568,993 2,250,007
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,871,673 $4,509,116
CARMAX GROUP
STATEMENTS OF EARNINGS (Unaudited)
PERIODS ENDED NOVEMBER 30
(Amounts in thousands except per share data)
Three Months Nine months
2001 2000 2001 2000
NET SALES AND OPERATING
REVENUES $774,324 $561,693 $2,422,507 $1,860,995
Cost of sales 683,298 490,014 2,118,995 1,613,305
GROSS PROFIT 91,026 71,679 303,512 247,690
Selling, general and
administrative expenses 61,215 56,809 182,027 177,601
Interest expense 64 2,664 4,701 9,150
EARNINGS BEFORE INCOME TAXES 29,747 12,206 116,784 60,939
Provision for income taxes 11,304 4,638 44,378 23,156
NET EARNINGS $18,443 $7,568 $72,406 $37,783
Net earnings attributed to:
Circuit City Group
common stock $11,889 $5,648 $50,992 $28,202
CarMax Group
common stock $6,554 $1,920 $21,414 $9,581
Weighted average common shares:
Basic 36,292 25,570 30,681 25,546
Diluted 38,316 27,020 32,661 26,965
NET EARNINGS PER SHARE:
Basic $0.18 $0.08 $0.70 $0.38
Diluted $0.17 $0.07 $0.66 $0.36
CARMAX GROUP
BALANCE SHEETS (Unaudited)
(Amounts in thousands)
November 30
2001 2000
ASSETS
Current Assets:
Cash and cash equivalents $10,014 $7,509
Net accounts receivable 168,198 107,880
Inventory 351,010 322,153
Prepaid expenses and other current assets 2,059 2,813
Total Current Assets 531,281 440,355
Property and equipment, net 107,535 192,766
Other assets 23,066 35,872
TOTAL ASSETS $661,882 $668,993
LIABILITIES AND GROUP EQUITY
Current Liabilities:
Current installments of long-term debt $43,038 $53,557
Accounts payable 93,219 79,989
Short-term debt 1,083 60,912
Accrued expenses and other current liabilities 24,360 21,104
Deferred income taxes 19,839 12,240
Total Current Liabilities 181,539 227,802
Long-term debt, excluding current installments 826 42,736
Deferred revenue and other liabilities 7,806 6,934
Deferred income taxes 3,713 7,519
TOTAL LIABILITIES 193,884 284,991
GROUP EQUITY 467,998 384,002
TOTAL LIABILITIES AND GROUP EQUITY $661,882 $668,993